One place I looked said it was a backformation of grot, but grot is a grotto, so I don't think that's right.
Always to me it meant offensive, nasty, perhaps physically dirty.
I first ran across the word when an Aussie friend of mine told me that there was an incident involving I believe the Aussie Minister of Tourism or Culture or some such. There had been some research that showed the koalas actually get a buzz from their primary food, eucalyptus, so they are pretty much stoned all the time.
Anyway, during a photo op one of these "cuddly" creatures peed all over this politician, who dropped the animal and yelled something to the effect, "Get this grotty little dope fiend away from me." And of course it was live on national television. Nancy claimed the public furor was so great the guy had to resign.
